Money Talks: Q4 2020 Market Commentary
A Message from Michael P. Leanza, CFP®
CERTIFIED FINANCIAL PLANNER™
Founder and President
4th Quarter 2020: An Early New Year’s Celebration! The 4th quarter kept the 2020 rebound going. After a bit of a dip as we approached the Presidential election, we finished the quarter with strength and kept the ball rolling on what has turned out to be a scary, but successful year, with most clients achieving their earnings targets at The GenWealth Group. All of our major asset classes: US equities, Gold, Mid and Long-term Treasuries and our Momentum Portfolio brought home returns above historical averages.
Equities: (Risk On) Equities enjoyed a robust 4th quarter with returns averaging solidly in the low double digits. This caps a year in which equities routinely saw returns in the mid/upper teen range. After the equity meltdown in February and March, we were fortunate to be able to rebound and ride the equity coattails for the remainder of the year.
Momentum Strategy: (Foot on the Gas-Mostly) Our Momentum Strategy also had excellent returns in the 4th quarter. We remained almost exclusively in equities, except for a brief exit of our DIA (Dow Jones Industrial average) tracking ETF, which we sold due to weakness prior to the Presidential election and repurchased as the market rallied post-election. This allowed us to achieve another strong quarter with Q4 gains of apx 12+% and finish off a year with gains in the 27% range. As you may know, Momentum is designed to allow “equity-like” exposure (“hit the gas”) when markets are calm and move to the relative safety of bonds and gold when markets are declining (“tap the breaks”). For most clients, Momentum was the strongest earner in 2020.
Bonds and Gold (Risk Off): Not surprisingly, with our “risk on” assets of Equities and Momentum equities enjoying a robust 4th quarter, our “risk off” assets of bonds and gold both suffered lackluster quarters. While maintaining excellent returns for the year, bonds, and gold (up 20%+ for the year) saw weakness in the 4th quarter. A bit of steam came out of the bond market with mid-term treasuries declining about 1% and long-term treasuries declining closer to mid-single digits over the past few months. Gold was approximately even for the quarter.
Leveraged Investing: Our more aggressive investors, often have a percentage of assets in leveraged stocks and bonds. The 4th quarter offered excellent returns in leveraged stocks and modest losses in leveraged bonds. During the Spring downturn, leveraged positions suffered steep declines. We were not comfortable jumping back into our leveraged equity positions until after the market settled. Unfortunately, the rally in the 4th quarter was not able to offset all the losses in our leveraged equity positions for the year.
Looking Forward to 2021: With a new year upon us, we can expect different challenges and opportunities. Here are some things that are likely to have an impact on markets in the coming year:
Election Results: As previously discussed, the outcome of the Presidential election did not unsettle markets. With a smooth transition (hopefully) to the Biden administration, the next thing investors will be monitoring is how the new administration governs. I am particularly interested in Janet Yellen’s nomination as Treasury Secretary, as well as the possibility of Jerome Powell staying on as Federal Reserve Chairman. As an advisor, I am optimistic that the potential appointment of these key positions will clear the path for an administration that supports markets and whose main focus is growing the economy. Although I think we will know a bit more by the second quarter, I do not think we will have a full sense of policy until well into Biden’s first year.
Will Markets “slow the roll”: As I write this, the market returns of the 4th quarter of 2020 feel a lot like the 4th quarter of 2019. Having said that, it is undeniable the pandemic has changed lifestyles and spending habits globally. I think it’s safe to say that many changes in behavior (travel for example) will take years to get back to full swing. While I am confident another pandemic is not around the corner, I do feel that investors need to proceed with caution and maintain balance. As we saw in the early part of 2020, balanced portfolios better withstand market corrections and smooth the ride.
While the markets recovered in 2020 and most client asset levels are at all-time highs, we will be happy to put the stress of 2020 behind us. I am hopeful that the “Main Street” economy can make similar strides in 2021.
From all of us at The GenWealth Group, we wish you and your family a happy, healthy, prosperous, and more normal 2021!
As always, please contact our office regarding specific questions related to your individual accounts and performance.